EDM: Armenia Selling More Infrastucture, Industry to Russia

Eurasia Daily Monitor

Tuesday, November 7, 2006 — Volume 3, Issue 206


by Vladimir Socor

In his November 6 news conference, Armenia’s de facto strongman and
presidential aspirant Serge Sarkisian welcomed the just-consummated purchase
of the Armentel telecommunications company by the Russian Vympelcom.
Sarkisian is defense minister as well as secretary of the national security
council (supervising the security agencies), concurrently heading the
Armenian side in the Armenia-Russia Economic Cooperation Commission, thus
also in charge of Armenia’s economic relations with Russia. `I don’t see any
risk at all in the growth of Russian capital in our country,’ Sarkisian
averred (Interfax, November 6).

Indeed he has, along with his long-time political ally President
Robert Kocharian, overseen the process of transferring Armenia’s
infrastructure and industrial assets to Russian interests. On October
31-November 1 in Moscow, Kocharian finalized the handover of the
Iran-Armenia gas pipeline and the Hrazdan electricity generating plant’s
fifth power bloc, the leading unit in the country, to Gazprom in return for
temporary price relief on Russian gas (see EDM, November 3). Low-priced gas
is only a recent rationale for selling infrastructure assets to Russia. In
2002-2005, the rationale was debt relief. Kocharian and Sarkisian oversaw
the transfer of state-owned industries to Russia in debt-for-assets swaps.

Vympelcom announced on November 3 in Moscow the purchase of a 90%
stake in Armentel from the Greek owner, Hellenic Telecommunications (OTE).
The Armenian government approved the deal with Vympelcom after an
international tender in which 16 companies participated and four were
short-listed. Vympelcom is paying $ 434 million in cash and assumes an
additional $ 52 million in OTE debt. OTE had bought Armentel from the
Armenian government in 1997 for $142.5 million and invested a reported $300
million in it since then. Armentel currently has a 40% to 50% share of
Armenia’s mobile telephone market and operates the country’s fixed-line
telephony network. The Armenian government retains a 10% stake in Armentel.
According to government data (Arminfo, November 3), Armentel has until now
been Armenia’s second-largest taxpayer.

During Kocharian’s Moscow visit last week, Russia’s Comstar
Telesystems announced the acquisition of Armenia’s telecommunications
company CallNet and its subsidiary, the Internet service provider Cornet.
The fast-growing Callnet and Cornet comprise the second-largest
telecommunications group in Armenia. The Russian Comstar is acquiring a 75%
stake in that group for an as yet undisclosed price, with an option to
purchase the remaining 25%.

Also during Kocharian’s visit, Russia’s state-owned Foreign Trade Bank
(Vneshtorgbank) announced its intention to acquire the remaining 30% of
shares in what used to be Armenia’s Savings Bank. The Vneshtorgbank had in
2004 acquired 70% of the shares in that bank, which became Vneshtorgbank
Armenia. The tycoon Mikhail Bagdasarov owns the remaining 30% stake and is
negotiating its sale to the Russian Vneshtorgbank (Kommersant, SKRIN Market
and Corporate News, October 30, 31).

On the eve of Kocharian’s Moscow visit, Sarkisian presided over the
ceremony marking the completion of the Armenian Aluminium plant’s overhaul
by Russian Aluminum. The Yerevan-based ArmenAl, a major producer of
aluminium foil, idled in the 1990s, was acquired in 2002 by RusAl, which two
years later subcontracted the overhaul to Germany’s Achenbach firm for $80
million (RFE/RL Armenia Report, Armenpress, October 26).

In September of this year, the Russian state-owned Inter-RAO UES (a
subsidiary of Russia’s Unified Energy Systems state monopoly) completed the
acquisition of the Electricity Networks of Armenia in full ownership from
the British-based Midland Holdings, which had privatized those networks in
2002. Apart from the transmission networks, Russia’s UES owns and operates
some 80% of Armenia’s electricity generation capacities and is the financial
manager of Armenia’s Nuclear Power Plant.

During his meeting with Kocharian in the Kremlin on October 31,
Russian President Vladimir Putin professed to feel that the level of Russian
investment in Armenia is too low, `strangely and shamefully’ so. Widely
cited in Armenia, this remark seems disingenuous on several counts. In fact,
Russia is the largest foreign investor overall in post-Soviet Armenia. Putin
‘s estimation for 2006 apparently did not include the
transactions-in-progress that are being finalized now. Unlike Western
investors, Russian ones are focusing on Armenia’s strategic assets and
infrastructure as an economic basis for political influence and control.
Putin’s remark seems designed to goad official Yerevan into selling more
assets to Russian interests, in which case Yerevan would have to start
scraping the bottom of the assets barrel.

(Noyan Tapan, Mediamax, PanArmenianNet, Armenpress, November 1-6)

–Vladimir Socor